Nvidia (NASDAQ: NVDA) became the poster child for the rise of artificial intelligence (AI) in early 2023. Data center chips used to train and operate powerful AI models created a fast-growing market that Nvidia has essentially dominated. But just like the internet in the late 1990s, excitement and newness can sometimes let the hype get a bit too far ahead of reality.
Lately, the markets have begun letting out some hot air. The Nasdaq Composite is almost 10% off its high, flirting with, technically speaking, a correction. Shares of Nvidia have declined nearly 25% since their peak in early January.
It can be frightening when stock prices fall like this, but I'm here to caution investors against letting the selling go too far. Nvidia's dip has arguably created a buying opportunity for long-term investors. I've broken down why and how to take advantage of this below.
Nvidia is no bubble
Like the internet in the late 1990s, the hype behind a new technology could create a bubble. Some internet stocks rocketed higher before crashing when the music (hype) stopped. That could very well happen with some AI stocks. However, Nvidia probably isn't one of them. Nvidia's stock has appreciated tremendously over the past two years, but genuine business growth has carried the stock, not hype. Nvidia has generated $130 billion in revenue over the past four quarters and is still growing at nearly 80%:
This trend isn't stopping; the leading technology companies investing in AI data centers, also called AI hyperscalers, have signaled continued investments in 2025. Reports indicated AI spending could top $320 billion this year alone. That comes on the heels of AI hyperscalers, like Alphabet and Microsoft, noting in their most recent earnings that cloud demand for AI continues to outpace available cloud capacity. OpenAI, a leading AI developer and creator of ChatGPT, recently stated it had run out of GPU chips, delaying its product rollouts.
It seems that Nvidia's AI growth is genuine and remains red-hot. This is no bubble, not when the stock trades at a price-to-earnings (P/E) ratio of 38, yet analysts believe earnings per share will surge over 50% this year and grow by an average of 34% annually over the long term.
The big picture in the AI industry
There's no such thing as a risk-free stock. The risk to Nvidia is that the small handful of companies investing all this money into AI begin shopping elsewhere or close their wallets entirely. Perhaps that is why Nvidia's valuation is so cheap relative to its anticipated earnings growth.
While you can respect the risks (that's why you diversify your portfolio), there is evidence that Nvidia can thrive beyond some temporary AI data center investment cycle.
The opportunity in generative AI spans beyond models like ChatGPT to other applications, including autonomous vehicles, humanoid robotics, and agentic AI that replaces humans in call centers. It also goes beyond the enterprise level. As technology advances and costs decrease, AI development will go downstream to smaller enterprises, even individuals. Nvidia recently announced a Blackwell-powered supercomputer that fits on a desktop.
Access to AI innovation may extend far beyond today's AI hyperscalers. Nvidia has an inside track to monetizing it as long as the company can build an ecosystem around its dominance in accelerator chips.
Here is the game plan
Nvidia keeps delivering stellar business results. Until that changes, it's hard to doubt the company's standing in arguably this generation's most important technology (AI). Even if Nvidia grew earnings by 19% annually over the long term, half of what analysts currently estimate, the stock's current P/E ratio equates to a price/earnings-to-growth (PEG) ratio of about 2, a reasonable price tag for that growth. In other words, Nvidia offers a margin of safety if things don't go as well as hoped over the coming years.
At the same time, stock prices can fluctuate with market volatility and economic and geopolitical changes. The past several weeks have shown that. Nvidia has declined by almost 25%, which could continue if broader market turbulence continues.
While Nvidia has a strong argument as the top AI stock to buy now, investors should always move slowly. Consider dollar-cost averaging, buying a little at a time to capture the additional value if prices head even lower. Remember, you will see prices go down unless you perfectly time the bottom, which almost nobody does.
Thinking about the next decade, it's hard not to like Nvidia's combination of future upside and present-day value.
Should you invest $1,000 in Nvidia right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
